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California law defines a gratuity as any money given or left by a patron for an employee
over and above the amount due for the goods or services provided by the employer. Labor
code section 351 forbids an employer from retaining any part of a tip that has been
left for an employee. In fact, California is one of the few states in the country that
prohibits an employer from using an employee's tips as a credit toward its obligation to
pay the minimum wage. Although employees may voluntarily agree to pool tips, an employer
may require tip pooling only amongst employees within the "chain of service." This policy
may not be used to compensate the employer in any way, nor anyone who is considered management-level
staff. For example, a waiter may be required to pool his or her tips with the bartender
or busboy. If a patron has left a tip using a credit card, the employer must give the
full amount of the tip to the employee no later than the next regularly scheduled payday.
This means that the employer may not deduct any credit card processing fees from the tip.
An employer who wrongfully withholds any employee tips may be liable under a cause of action
for conversion. This is an intentional tort that entitles the employee not just to the
amount of the tips that were wrongfully withheld, but also to an unlimited amount of punitive
damages. An employer who wrongfully credits an employee's tips against its obligation
to pay the minimum wage has willfully failed to pay the employee's wages and is liable
not just for the lost wages, but also a waiting time penalty and attorney's fees. Consult
with an experienced employment law attorney today to see if your restaurant's tip policy
is compliant with the California Labor Code.